Eye on the News

Steven Malanga

Forty-Third Street’s Fiscal Fantasies

When it comes to Gothams budget, the New York Times cant count.

May 15, 2003

New York Times readers must have greeted the news of Governor Patakis praiseworthy veto of a state budget packed with aid for the city with befuddlement. What could the governor possibly be thinking, they must have wondered, after reading weeks of Times coverage on the subject?

The Times, after all, has been leading the charge for higher taxes, not just on its editorial pages, but on its news pages. In a string of news pieces, the Times has tried to persuade New Yorkers that the crushing city and state tax burden isnt all that great and that somebodypreferably commuters, but if not them, then businesses and rich New York City residentsshould be paying more to bail the city out of its current fiscal mess and keep Gotham from losing supposedly crucial services. In arguing these points, the Timess news stories conveniently and consistently overlook or omit essential elements in the debate. Call them the Grey Ladys blind spots.

Blind spot number one: The citys business community. In many of these stories, the Times seems unaware that New York is home to some 200,000 businesses, many of them extremely small neighborhood enterprises, and that they pay a heavy share of city taxes. Consider a story on Mondays front page, which claimed that, despite frequent assertions to the contrary by many experts, the citys taxes really arent the highest in the countryand are in some cases actually quite moderate.

To come to this conclusion, the Times simply ignored the citys business community and instead drew on comparative tax studies that dont include commercial taxes in their calculations.

To understand exactly what the Times was missing, or leaving out, consider a 2000 study published by the citys Independent Budget Office, comparing Gothams taxes to those of other major American cities. The IBO measured the total amount of taxes the city collects as a portion of all Gothams taxable incomethat is, not just residents personal income but business income, too. The study found that New York hauls in about $7.99 for every $100 of taxable income, compared with an average of just $4.47 per $100 for the next 9 biggest cities in America, and that businesss contribution makes up a significant portion of this enormous difference.

The IBO study pointed out that New York City corporate income tax payments alone amounted to $3 billion annually, compared with just $800 million for the next nine largest cities combined. But after all, most citieseven other large onesdont have their own corporate tax, or, if they do, it is a relatively small one.

But corporate income tax tells just part of the story. In its article, the Times emphasizes that the citys property tax rates for residents in single-family homes can be quite low (though thats not true for residents of co-op apartments). But the story completely ignores the staggering tax rates for commercial properties in the city. In a midtown Manhattan office building, for instance, a typical commercial lease includes nearly $10 per square foot of tax, adding as much as $5 million annually to a large companys 500,000-square-foot lease. In most other major American cities, local property taxes make up maybe $3 to $4 per square foot of taxes, and in suburbs they are typically even lower.

How much in property taxes did the Times story miss? Well, tenants of commercial properties in New York, including everything from office buildings to utilities plants, will pay about $5 billion in taxes this yearor slightly more than half of all property taxes collected. Thats some chunk of change to ignore.

Blind spot number two: The local economy. In its tax stories, the Times never thinks to ask: What kind of economy do New York and other heavily taxed cities have? And might there be some relationship between high taxes and low economic growth?

The Times led off its tax story on Monday, for instance, pointing out that for rich” peoplethat is, those earning above $150,000 a year (which in high-cost Gotham is hardly rich)the city is only” fifth on the list of most heavily taxed municipalities, behind Bridgeport, Connecticut, Newark, New Jersey, Providence, Rhode Island, and Des Moines, Iowa. Sound not too bad? Well, New Yorkers might want to ask themselves, as the Times did not, What kind of bedfellows are these?

Not very good, judging by the job numbers. Like New York, three of these highly taxed cities have been stuck in economic cycles of bust and recovery that lag national performance and result in little or no sustained economic growth. Newark, for instance, is trumpeted as the renaissance city,” but its job growth has been sporadic and cyclic. The city hit its last job peak in 1988, then lost tens of thousands of jobs and spent the late-1990s boom essentially just recapturing them. Of the five, only Des Moines has shown sustained growth rather than merely cyclic ups and downs, but compared to the rest of the nation, its rate of job growth is only average.

Blind spot number three: The flight out of New York. In many of its tax stories, the Times likes to ask whether higher taxes will drive away residents. It then usually elicits a perfunctory opinion from someone in the Bloomberg administration, or some other advocate of high taxes, that a few more dollars in even steeper taxes wont really matter enough to prompt someone to pick up and leave the city. It all sounds so reasonable.

But wait: to prognosticate the future, why not just look at what has been happening in the present? The Times seems oblivious to what is commonplace knowledge: that city residents, especially higher income ones, have been steadily leaving the city in great numbers for years.

New York City has whats known as a negative net domestic migrationjust a fancy way of saying that more residents leave the city for somewhere else than move into New York from elsewhere in the U.S. A 1999 Empire Foundation study of IRS tax records shows that from 1992 through 1997 New York had a negative domestic migration of 477,168in other words, nearly half a million more people left the city than came here from somewhere else in the U.S.

And those leaving the city have much higher incomes that those coming into it. Take a look at Manhattan, whose upper-income residents will bear the brunt of new city income tax increases. Those leaving Manhattan earn on average about 22 percent more than those coming here. Households moving to Westchester from Manhattan had family incomes of $117,450 a year, about $35,000 more than those who come from Westchester to Manhattan. The spread was nearly as great for migration to Suffolk: $94,441 in household income for those leaving the city to live in Suffolk but about $33,000 less for those moving into Manhattan from the county.

The outflow costs the city plenty, and a lot of the lost revenue ends up in New Jersey because of the high combined state/city tax rates. The Empire Foundation study found that from 1992 through 1997 New York State had a net loss of 116,637 people to New Jersey, representing $2.7 billion in lost taxable income, much of which undoubtedly came from Gotham. And now the city and state are both raising income taxes, further increasing the gap with New Jersey. No wonder the city has a budget crisis, if it is consistently driving away its highest earners.

In light of these statistics, the argument that a few dollars more in taxes wont matter misses the point. New York is already losing the battle to retain higher income families.

But to advocates of higher taxes, including apparently Times reporters and editors, such data rarely spark much curiosity. Take for instance another recent Times story, which noted that commuters earned on average about $33,000 a year more than workers who were city residents, and that they were more likely to work in high paying city industries like finance. The Times story used the data to suggest that commuters could more easily bear a tax increase than city residents, and so the commuter tax should be reinstated.

But shouldnt a reasonably inquisitive person ask a simple question of the tax advocates peddling this data: Why do so many of those who work in the best jobs in the citys most lucrative industries choose to live outside New York? And how many of these high earners used to live in New York? But not the New York Times.

Conspiracy theorists might conclude that the Timess news pages are helping support the papers editorial position on higher taxes. I prefer to think that the Timess left-leaning news staff has blinkers on. They have trouble seeing the implications in data that contradict their own preconceptions, and trouble formulating questions that challenge their own beliefs.